{"id":3268,"date":"2015-12-08T17:21:51","date_gmt":"2015-12-08T22:21:51","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/build-a-bear-workshop-its-time-to-hibernate\/"},"modified":"2015-12-08T17:24:40","modified_gmt":"2015-12-08T22:24:40","slug":"build-a-bear-workshop-its-time-to-hibernate","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/build-a-bear-workshop-its-time-to-hibernate\/","title":{"rendered":"Build-A-Bear Workshop: It\u2019s Time to Hibernate"},"content":{"rendered":"

Since its first store opened in 1997, Build-A-Bear Workshop has stood apart from its competitors (Toys \u2018R\u2019 Us, KB Toys) by offering a unique experience where customers go into workshops and physically stuff bears or other animals.\u00a0 However, recent industry trends within the retail sector, such as decreased mall traffic and significant movement to online shopping, are threatening Build-A-Bear\u2019s physically dependent operations.\u00a0 Build-A-Bear Workshop may be headed for the (bear) pits.<\/p>\n

\"Image<\/p>\n

Build-A-Bear\u2019s business model is simple: to create a unique, engaging retail experience where customers build stuffed-animals through personalization and customization.\u00a0 Each customer walks through the entire process of making their own individual bear, then makes a wish and gives it a heart to bring it to (imaginary) life.\u00a0 This process keeps customers extremely engaged and provides a point of differentiation among competitors.\u00a0 Despite its distinctive business model, failure to adapt Build-A-Bear\u2019s operations to the changing industry has contributed to revenue declines from almost $500M in 2008 to less than $400M in 2014 and a 50% decline in stock price in 2015.<\/p>\n

Lack of conversion to online sales: <\/strong>To support Build-A-Bear\u2019s strategy, the company operates brick-and-mortar retail stores both domestically and internationally.\u00a0 Retail stores are the core delivery model of value to the customer and do not appear to translate to an online experience. \u00a0Within the retail industry, ecommerce has grown by 15% year over year (outpacing the traditional retail growth rate) and preference for online versus physical shopping is expected to continue growing at this rapid pace.\u00a0 Build-A-Bear has so far failed to adopt its operating model to meet changing customer buying behaviors because their current business model is constrained by the need for physical space.\u00a0 Despite launching a web store (which only sells pre-made stuffed animals and clothes), less than 4% of sales in 2014 were captured online.\u00a0 Additionally, management plans to open new stores as part of its overall strategy for the upcoming year.<\/p>\n

Over-reliance on retail collaborators: <\/strong>Most Build-A-Bear Workshops are located within shopping malls.\u00a0 Build-A-Bear\u2019s do not exist as free-standing stores and depend heavily on traffic generated by the overall shopping mall.\u00a0 Traffic within shopping malls is usually generated through the malls\u2019 anchor tenants (e.g. Macy\u2019s, Nordstrom\u2019s). \u00a0Mall traffic declined 28% in 2011, 16% in 2012 and 15% in 2013 and continues to decline.\u00a0 Build-A-Bear has little control over the development of new shopping malls, the addition or loss of anchor tenants, and the overall success of a shopping mall.\u00a0 To combat declining traffic, Build-A-Bear has migrated to different store platforms (outlet malls and shop-in-shops at Macy\u2019s).\u00a0 However, these efforts have been met with little success as evident by the operating losses posted for this segment in 2013 and 2014.<\/p>\n

\"\"<\/p>\n

Looking forward, Build-A-Bear Workshop is well-positioned to better align its business and operating model.\u00a0 The company carries little debt and stable free cash flows \u2013 a prime target for turnaround.\u00a0 Within the last week, activist investors acquired about 8% of the company.\u00a0 Management should consider how to replicate the unique personal and customized experience available in-store to other platforms.<\/p>\n

 <\/p>\n

Sources<\/u><\/p>\n

[1] www.buildabear.com<\/a><\/p>\n

[2] http:\/\/phx.corporate-ir.net\/phoenix.zhtml?c=182478&p=irol-reportsannual<\/a><\/p>\n

[3] http:\/\/phx.corporate-ir.net\/phoenix.zhtml?c=182478&p=irol-newsArticle&id=2018091<\/a><\/p>\n

[4] http:\/\/seekingalpha.com\/article\/3707226-why-build-a-bear-is-experiencing-trouble?page=2<\/a><\/p>\n

[5]\u00a0http:\/\/seekingalpha.com\/article\/3725196-cannell-capital-rebuilding-build-a-bear?li_source=LI&li_medium=liftigniter-widget<\/a><\/p>\n

[6] http:\/\/www.bloomberg.com\/gadfly\/articles\/2015-11-25\/there-s-a-buyout-case-for-build-a-bear<\/a><\/p>\n

[7] http:\/\/www.stltoday.com\/business\/local\/activist-buys-percent-stake-in-build-a-bear-wants-share\/article_35e2e5cc-635d-5dfb-b58d-ae29ee278db1.html<\/a><\/p>\n

[8] http:\/\/www.strategyand.pwc.com\/perspectives\/2015-retail-trends<\/a><\/p>\n

[9] http:\/\/www.wsj.com\/articles\/SB10001424052702304419104579325100372435802<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Retail industry trends, such as decreased mall traffic and movement to online shopping, are threatening Build-A-Bear Workshop's physically dependent operations<\/p>\n","protected":false},"author":876,"featured_media":3271,"comment_status":"open","ping_status":"closed","template":"","categories":[170,63,219,119,16],"class_list":["post-3268","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-brickandmortar","category-consumer-goods","category-ecommerce","category-loser","category-retail"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/the-tom-challenge-tom-winners-and-losers-assignment\/","yoast_head":"\nBuild-A-Bear Workshop: It\u2019s Time to Hibernate - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/build-a-bear-workshop-its-time-to-hibernate\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Build-A-Bear Workshop: It\u2019s Time to Hibernate - 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